MOD publish refreshed Industrial Strategy

On 20 December, MOD published its refreshed Defence Industrial Policy entitled ‘Industry for Defence and a Prosperous Nation’. As UK industry’s single largest customer, spending £18.7bn of the rising defence budget with British companies last year and directly supporting over 121,000 jobs right across the country, the Defence Secretary outlined the importance of the partnership to both the industry and the security of the country in light of the refresh. Focused on three key strands, it aims to strengthen the partnership between the Government and industry. The first focuses on improving the way defence delivers wider economic and international value, the second aims to help industry to be internationally competitive in the export market, and the third seeks to make it easier for companies to do business with defence - with a particular focus on innovative SMEs and non-traditional defence suppliers. EEF and NDI have long made the case to MOD that the contribution that the UK defence industry makes to national security and economic prosperity are interdependent and we welcome the refreshed industrial policy as a significant step to recognising this. In particular, we welcome the commitment to earlier consideration of the economic impact of defence programmes, ensuring that this is considered as part of the business case for investment. Combined with the intend to make it easier for SMEs to do business directly with MOD, this will have a far-reaching and positive impact if properly applied. You can read Director of NDI, Andy Tüscher’s take on the new policy here.

UK defence capability review ‘delayed’

The Financial Times reports today that the Government will postpone the defence element of the upcoming National Security Capability Review as it considers how to fill the £20bn funding gap at MOD. According to the report, the 11 other elements of the review - including counter terrorism, cyber threats and international aid - will be published as soon as possible, but decisions on MOD capability will be pushed back until later in the year. This reflects mounting pressure on the Government from the Conservative backbench to ensure that the commitments made in the 2015 Strategic Defence and Security Review are kept. Analysts quoted by the Financial Times estimate the defence budget needs an additional £1.5bn a year to meet these. Delaying the defence element risks further uncertainty for industry, with one unnamed executive quoted saying that “anything that creates uncertainty is not good”. The government has refused to comment on the speculation.

House of Commons Defence Committee reports on MOD efficiency targets

On 17 December, the House of Commons Defence Committee published their report on MOD’s progress towards its efficiency savings targets. It casts serious doubts about the affordability of the equipment plan and the Department’s ability to generate the savings required to deliver it, which rests on a presumption of £7.3 billion in ‘efficiencies’ that have yet to be achieved. The report found that, in the past, the MoD has proven incapable of making savings on the scale it is predicting and, even this can be realised, there will be little room for manoeuvre in the absence of contingency funding. The wide press coverage highlighted the Chairman, Julian Lewis’ comments that “it is extremely doubtful that the MOD can generate even more efficiencies from within its already stretched budget…this will inevitably lead either to a reduction in the numbers of ships, aircraft and vehicles or to even greater delays in their acquisition.” The report went on to call for greater clarity between genuine efficiency savings and cuts in capability needed, stressing the importance of sustained production in UK defence manufacturing, in order to maintain a successful and high-skilled workforce and to preserve our sovereign defence manufacturing capabilities.

Government sectoral analyses on BREXIT impact published

On 21 December, the House of Commons Brexit committee published 39 of the Government’s sectoral analyses on the impact of leaving the EU on the UK economy, including defence. The reports were obtained by the committee using their Parliamentary power to demand government papers. Hillary Benn MP, the committee chair, was highly critical of their lack of detail, Secretary of State for Exiting the EU, David Davis drew a distinction between impact assessments, which he said did not exist, and “sectoral analyses”, which are more limited in scope. The defence analysis provides an overview of the size and make-up of the sector in the UK. While it concludes that the sector is of high strategic and political importance, and that significant dependencies exist in terms of EU law and regulations, it does not propose a post-EU sectorial model. Specific issues highlighted include intellectual property rights, R&D funding, environmental law, Aviation safety regulations, EU civil standards that apply in defence. The full document can be read here.

Parliamentary Questions:

Asked whether MOD has established a market access commission on the implications of the withdrawal of the UK from the EU, the Minister replying answered that “the Department is undertaking a programme of analytical work looking at the implications of UK withdrawal from the EU, as they apply to the defence sector. This analysis includes input from a wide range of businesses and industry bodies and is continuously updated. The Department is examining the economic implications for the defence sector and seeking input from a wide range of businesses and industry bodies in order to inform negotiations with the EU.”

Asked what percentage of defence capital spending on procurement from overseas is currency hedged, MOD replied that “the Department uses forward purchase contracts for US Dollars and Euros to provide a degree of stability for budgetary planning over the medium-term. The forward purchase programme is structured to provide an increasing level of cover in the three years before the requirement. The Department purchased in advance 89 per cent and 99 per cent of expenditure in US Dollars and Euros respectively in financial year 2016-17 and has secured prices for approximately 90 per cent of forecast demand in financial year 2017-18. Given this is a rolling programme, we have already placed contracts for 70 per cent of expected demand in 2018-19 and a smaller proportion in the following years. The consequences of sustained adjustments to exchange rates are dealt with as part of the Department's routine financial management by allocating appropriate levels of contingency, including in the Equipment Plan.”

Asked why there are no key industrial capabilities with regard to the UK complex warship building industry identified in the National Shipbuilding Strategy, and why MOD will no longer explicitly commit to achieving the national sovereign capability to achieve a build interval of one shipbuild every 12 months, MOD replied that “the National Shipbuilding Strategy lays the foundations for a modern and efficient shipbuilding sector capable of meeting the country's future defence and security needs. MOD will seek to ensure the UK's long term operational advantage and freedom of action by strengthening the nation's industrial shipbuilding base, including the ability to design, build and integrate warships.”

Asked what the cost to the public purse is of the recent order of 14 F-35 fighter jets, the Minister replying said that “the UK has taken delivery of 14 F-35B Lightning II aircraft between 2012 and 2017. The total unit flyaway cost for these aircraft is $1920 million.”

Asked what the remit of the assessment phase of the Mechanised Infantry Vehicle programme is, MOD replied that “the Mechanised Infantry Vehicle assessment phase will confirm the capability requirement, optimum fleet mix and delivery sequence for the Army's new strike brigades.”